Explain each of the following and why each might be used: hard pegs, currency boards, and dollarizations.

What will be an ideal response?


A hard peg is a fixed exchange rate regime where policy makers, in some way, have made it symbolically or technically harder to change the peg. A dollarization occurs when the domestic currency is replaced by a foreign currency (typically the dollar). Under a currency board, the central bank is prepared to exchange foreign currency for domestic currency at some official rate. Furthermore, the central bank cannot engage in open market operations.